Is forward guidance an effective policy: A time-varying analysis

Forward guidance has increasingly become a crucial tool for central bank. We aim to analyze the dynamic impact of forward guidance in China by utilizing high-frequency identification methods. The findings indicate that forward guidance is an effective policy tool. Forward guidance can effectively influence the policy rate, reduce uncertainty in monetary policy, mitigate frictions in financial markets, and stimulate the real economy. In regard to its dynamic effects, forward guidance can effectively contribute to counter-cyclical regulation. Furthermore, forward guidance exerts a substantial influence on financial markets, contributing to the reduction of potential risks and financing constraints.